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Bharat Heavy Electricals Ltd. (BHEL) | Company Update BHEL maintains a strong order book of Rs 1,353 bn: In the last 1 month, shares of the listed Power goods major, BHEL delivered 2% negative returns. The stock has been an underperformer on account of concerns emerging for slow-down in the order book execution (with some of the projects likely to get cancelled). Street has been concerned about some of these private power developer projects either being cancelled or deferred for longer duration. In the recently held BHEL’s Annual General Meeting, top management explicitly highlighted that there is no slow-down seen across these private power developer projects (with reference being made towards some of the projects). Also, Associated Chambers of Commerce & Industry of India (ASSOCHAM) in recently released report has highlighted that projects executed by Tata’s, Reliance, OP Jindal and India Bulls have been on time and have not experienced any time lags. Valuation: At CMP of Rs 232, as per our estimates the stock is trading at FY13E and FY14E, P/E multiple of 7.2x and 7.5x, respectively. We have not made any changes to our previous estimates. After taking in to account positives such as, (1) BHEL would emerge as biggest beneficiaries in power capital goods space, for any turn-around in the economy, (2) Strong order book of Rs 1,353 bn, giving revenue visibility for over next 2 years, (3) with huge market opportunity opening up in FY13E and FY14E and some of the competitors (such as BGR Energy) already running their plants at 100% capacity utilizations, BHEL would emerge as a beneficiary, we continue to maintain our BUY rating on the stock with as price target of Rs 274, reflecting 18.1% upside potential from current levels.

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